Money - home loan back to basics

With all the talk of Interest Rates changes I though it might be worth looking at home loans and how to get rid of your home loan ASAP.

Not a subject directly connected to BeFound and employment, but a subject that is very important to us all.

Firstly, unless you are very strict with your money and have a good handle on exactly what you are spending try to avoid an ‘All in one’ portfolio type loan which work like a normal bank account in permanent overdraft.

These loans are extremely flexible, but the lenders are banking on you getting lost with your budget and essentially treating it as an interest only arrangement – always reverting back to your max overdraft limit.

As with anything you can use the flexibility to your advantage, but be very careful. If you are not great at budgeting do not use the loan account as your everyday bank account – maintain a separate every day transaction account.

The thing to realize is that despite what they say the banks actually want you to be in debt for as long as possible – that is how they make their money so when you are offered fancy new home loan product, make sure you know exactly what you are signing up to.

The biggest mistake is using home loans to free up cash. Using home loans as a cash flow tool is extremely risky and your only aim with your home loan should be to pay it off ASAP. Reduce the term as much as you can and overpay as much as you can afford as often as you can afford.

There are people out there who still promote interest only loans – but my view – steer well clear of them unless it’s for an investment property and you know exactly what you are doing.

Over the next 6 days we will give you 6 easy ways to pay off your home loan quicker. Do all of these and you could save well over $150,000 in interest and shave at least 10 years off the term of your loan.

All the examples we show over the coming days are based an initial loan of $300,000 over 30 years at a rate of 7.5%. The savings are not exact and are designed to be nothing more than thought provoking. The scenarios are generic and do not take individual circumstances into account. You should seek independent financial advice before making any significant changes to your financial products.